It’s been a tricky week for the market, with lots of volatility and news-driven moves, but the major indexes came through it in decent shape—even including this morning’s drop, the S&P 500 and Nasdaq were both up 0.5% to 1% on the week, and the small- and mid-cap indexes are up far more (in the 4% to 6% range).
That keeps the intermediate-term trend pointed up, which is obviously a plus. And, from a top-down perspective, we also like the very low numbers of stocks hitting new lows (a sign that selling pressures are sporadic) and our bullish Aggression Index (the Nasdaq continues to outperform defensive sectors).
However, for the second straight week, the real action was under the surface. First off, after a few weeks where growth stocks did well and the broad market meandered, we saw the reverse in recent days, with most high relative strength names selling off while energy, industrials, financials and transports attracted buyers.
Second, going along with that, we’ve seen a pickup in selling on strength—there have been a few attempted breakouts this week, but most have fallen flat. Similarly, earnings reactions have been hit or miss, and those that have reacted positively haven’t followed through to the upside much (at least not yet).
None of that is to say the rally is in a lot of trouble. Indeed, with the major indexes still in uptrends and hardly any leading stocks cracking key support, there’s more positive evidence than the other way around. We’re optimistic the path of least resistance remains up.
But following the intermediate-term green light a couple of weeks ago, we think the market is still in a feeling-out process—there have been some ups, some downs, lots of rotation and plenty of news-driven moves. We’re still OK putting some money to work, but (a) it’s best to be discerning, and (b) remember to let the market pull you into a more heavily invested position; don’t be in too much of a hurry to plow a bunch more money into the market until you’ve developed some profits on your last few purchases.
Net-net, we’re likely to keep our Market Monitor at a level 6.
BUY CANDIDATES
American Tower (AMT) is a REIT, so it’s not going to double in a month, but it’s showing solid action—the stock ripped all the way back to its old highs in early April and has since eased lower to some support in the mid-230s before and after earnings. We’re OK picking up a few shares here with a stop around 224.
Five9 (FIVN) has earnings on Monday, so it’s tough to plow in here. But our favorite setup these days are stocks that got hit in March, stormed all the way to new highs, and are pulling back in recent days. If FIVN collapses into the low 80s on earnings, all bets are off, but any controlled dip into the 88 to 90 range would be a tempting buy, with a stop in the 80 to 82 range.
It’s a similar situation with Inphi (IPHI), which reports next Thursday—the stock has surged to new highs since the March 23 low, but has now begun to pull in. We’re not opposed to a nibble here (with a stop around 85), or on a dip into the low 90s after earnings (with a stop around 83).
Smartsheet (SMAR) has been choppy and volatile, but it’s set up near the top of a multi-month base. Cloud software names have been hit and miss (Atlassian got hit today after earnings), but if you want to play a breakout, you could enter above 55 with a stop around 49.
SUGGESTED SELLS
Just another reminder to take a few chips off the table if you’ve been handed a solid profit in this environment—names like Masimo (MASI), Moderna (MRNA), Quidel (QDEL) or ZTO Express (ZTO) are examples.
As for outright sells, we have none right this second, but we will likely have some on Monday after we see how today’s selloff plays out (and Monday’s reaction to it). Stocks like AAPL, AMD and RNG are close to the edge, and we’ve added a handful of new stops below.
SUGGESTED STOPS
Acceleron Pharma (XLRN) near 85
Advanced Micro Devices (AMD) near 48
Atlassian (TEAM) near 140
Bilibili (BILI) near 25
CrowdStrike (CRWD) near 59.5
Gilead (GILD) near 75
Netflix (NFLX) near 380
Novovax (NVAX) near 15
Pelaton (PTON) near 27.5
Regeneron Pharma (REGN) near 485
Repligen (RGEN) near 100
RingCentral (RNG) near 210
Zscaler (ZS) near 59.5